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James Pethokoukis is a columnist and blogger at the American Enterprise Institute. Previously, he was the Washington columnist for Reuters Breakingviews, the opinion and commentary wing of Thomson Reuters.

This new Kaiser study on premium support is going to be horribly, terribly misused

The Kaiser Family Foundation is out with a study that examines the cost implications of layering a premium support system onto traditional Medicare, a principle supported by Mitt Romney. Now I doubt many partisans will get past the lede, like this one from The Hill:

Converting Medicare to a voucher system would raise premiums for more than half of seniors, assuming they keep their current healthcare plans, according to a new study.

The nonpartisan Kaiser Family Foundation found that about six in 10 Medicare beneficiaries would see higher premiums under a generic premium-support model, assuming their plan preferences remain the same.

This would include more than half of seniors enrolled in traditional Medicare and nearly all of those enrolled in Medicare Advantage, Kaiser said.

Yet the Kaiser study has a number of shortcomings that render it a poor tool for judging the merits of what Romney is proposing. For starters, the Kaiser study is not an analysis of what Romney is proposing. As the study’s authors clearly state, “This study should not be construed as an analysis of a particular proposal. To conduct the study, we made a number of policy assumptions that may or may not be consistent with the intent of premium support proposals.”

One big difference is that the Kaiser study assumes immediate implementation versus Romney’s plan of letting today’s seniors and those approaching retirement stick with traditional Medicare. The study is also a static analysis of premium support that doesn’t attempt to model how choice and competition might change Medicare and private insurance. As the WaPo’s Sarah Kliff explaims:

There are a few factors to keep in mind when thinking about these results. This study captures what would happen if, right now, premium support went into effect. It does not capture how private Medicare plans would react to that new market.

Right now, there are some pretty big incentives for private Medicare plans to make their bids lower than the expected cost of health care. (The reasons are a bit complicated and laid out in more detail here). If private plans decided to raise their bids by 25 percent, only 34 percent of seniors would find that their voucher check did not cover their traditional Medicare premium. But that would also mean the system wouldn’t save much money.

There’s also the possibility that government-run Medicare could change. One big goal of the Affordable Care Act, after all, is to make the insurance plan more cost-efficient by changing doctors’ financial incentives. If Medicare became 10 percent less expensive, the Kaiser analysis estimates that the number of seniors who paid more would again drop by double-digits.

If the Romney-Ryan reforms work as planned, a lot of these changes would indeed happen — driving down Medicare costs in the process. Seniors might take a second look at their Medicare plan and decide to go with a less expensive option. Medicare may become more aggressive in rooting out inefficiencies to stay competitive, again lowering health-care costs.

There are a lot of unknowns about Medicare’s future, variables that are pretty crucial to understanding what premium support would mean for seniors.

In addition, comparing any reform plan to an unstable status quo is problematic. But somehow, I would guess, these important caveats will get lost in the political fray of a presidential campaign.

Discussion: (5 comments)

Romney should be ready to respond about this study tomorrow. If 6 in 10 would face higher costs, that means 6 in 10 could be guaranteed the same level of Medicare benefits for a lesser cost. There are almost 50 million people in Medicare today. That means we could lower the government’s cost of Medicare insurance for nearly 30 million people, today, by going to Romney’s plan.

Might people have to change plans? Sure. Should the government pay more than is necessary for coverage? No. Is it about time that we grow up as a nation and take responsibility for our long term debt? Yup.